It’s no secret that the real estate industry went through dramatic changes as we entered the new year. The pandemic changed real estate in big ways, not only in the way many people see houses but also in the demand, prices, and the overall trends.
As a real estate investor, it’s important to stay on top of the latest trends so you know how to proceed—understanding where the economy is headed, what trends are emerging, and how you can make the most of your investment.
Here are the top 10 real estate market trends for investors you should watch this year.
Renters Are Moving Away From Urban Areas
It used to be that urban areas were the ‘hotspots’ and had the highest rents. Investors scrambled to buy properties in those areas in the hopes of earning high rates of return. In 2021, though, the trends have changed.
Now, most people are moving to suburban areas – they want more space and privacy because of the amount of ‘at home’ time we have. The trend is also moving upward because of the lack of commuting millions of people have to do today.
Before, many people chose urban homes because they didn’t want the long commute. They’d rather be close to their job and not spend all that time in the car. With millions of people working from home now, commuting isn’t an issue, which means more people can live in the suburbs spacious areas.
New Home Building Is On A Downward Trend
Despite the high demand for housing and low supply, new builders are handcuffed by the high cost of materials and lack of labor available. Builders initially saw a decrease during the pandemic because of the lockdown. They were unable to get permits and licenses needed to do any building.
Since the lockdown has lifted, builders are still facing difficulties but not because of a lack of permits and licensing. Now it’s due to the sky-high prices of materials, namely lumber, and a lack of workforce.
With higher costs come higher prices for the end consumer, which leaves most people unaware of how to afford a new home. With new home buildings down, it creates even more opportunities for investors since people who can’t buy right now must rent.
It helps to buy homes in the hottest areas – the areas where people can’t afford new homes and are turning to rent instead. Roofstock Marketplace is a great resource to help you find the hottest areas to invest in so you can jump in headfirst.
Stimulus Payments Help Renters Stay On Track
Despite the economy bouncing back, millions of people remain unemployed. This doesn’t bode well for many investors who rely on the monthly rental income. Fortunately, the stimulus payments continue to carry those who need it most.
Between the three stimulus checks and now the advance child tax credit checks, renters can stay on time with their payments which is important as the eviction moratoriums end. Many areas still have a moratorium, keeping renters in their homes in areas of high transmission, but the protection for renters will end eventually, but the stimulus payments thus far are keeping most people on track.
The stimulus payments even help landlords stay on top of their responsibilities, including the home maintenance, taxes, and insurance that may not be, covered in the collected rent.
Mortgage Rates Remain Low
The Fed lowered interest rates significantly, almost to 0%, which didn’t directly impact mortgage rates, but eventually, it trickled down. We’ve seen some of the lowest interest rates in decades, making it even more affordable to invest in real estate.
The trend looks like it will continue for the foreseeable future. Experts don’t believe the rates will increase, at least through 2022. This leaves investors with even more opportunities to buy property. With interest rates low, you can borrow from your primary residence’s equity or take out an investment loan. While investment loans have higher interest rates, the overall loan may cost less if you’re starting at a lower rate.
Today mortgage guidelines are flexible, meaning it’s easier for many people to secure a mortgage. If you have equity in your own home, it’s usually easiest to tap into that equity, but finding loans for your investment property directly may be an option too.
Housing Is Unaffordable For Many
According to ATTOM Data, home prices are less affordable in over 60 percent of counties throughout the country than typical. This is the highest rate of unaffordability we’ve seen since 2019.
While income levels remained stagnant, home prices have increased by default with the higher demand. Bidding wars create much higher prices, leaving many who would usually be able to afford a home in the dust.
Since lenders try to keep a mortgage, taxes, and insurance payment within 28% of a borrower’s income, it’s getting harder and harder to stay there with the increasing housing prices. This leaves many would-be buyers as renters and opens up more possibilities for investors.
Home Price Increases Are Faster Than Wage Growth
In over 400 counties throughout the United States, home prices are increasing at a pace much faster than wage growth. Some counties experiencing faster home price increases than wage growth include Los Angeles, Harris, San Diego, and Orange County.
This opens up more possibilities for investors as more people will continue renting versus buying. Finding the markets where price increases outpace wage growth is essential, and Roofstock Marketplace is a great platform to help you find the right properties. Roofstock provides the research and due diligence required to invest confidently. You don’t have to find all the information yourself – they do it for you leaving you only with the correct information to decide.
The Housing Inventory Decline Is Shortening
In June of this year, we saw a decline of 43.1% in active home sales year-over-year, but July saw a slight decrease in the decline, with only a 33.5% drop year-over-year. This signifies that the industry and economy are moving in the right direction but still have a long way to go.
To put it into perspective, in July, there were over 300,000 fewer homes for sale than there were last July. The high buyer demand puts many people in the lurks as they try to find affordable housing.
The lack of housing drives up prices, making it unaffordable for many buyers, which, again, is good news for investors who know where to find the best-priced properties to buy and rent out to those who can’t buy.
Consumers Are Buying Smaller Houses
Another trend we’re seeing is buyers selecting smaller houses. While it could be because of the large number of people moving from urban to suburban areas, the drop in large home sales leaves more opportunities for investors.
Larger homes cost more money, and with affordability down, it makes sense. Investors who can jump at these opportunities to buy larger houses can rent to larger families and collect higher rents.
Studies show that buyers are looking for homes from 750 square feet to 1,750 square feet. The demand is up 6% year-over-year, and the need for larger homes of 3,000 to 6,000 square feet is down 4%.
Days On The Market Are Lengthening
When the lockdown first let up, and real estate opened up again, homes were selling faster than you could blink. Today, the days on the market are increasing, giving buyers more time to make decisions or even get in to see homes.
While the days on the market are still a good 20+ days less than this time last year, the average home sits on the market for 38 days, giving everyone more time to make a decision.
With longer days on the market, investors have more room to negotiate with sellers, especially if homesbest-priced sit on the market longer unsold.
Short-Term Rental Popularity Is On The Rise
This summer, it felt like everyone, and anyone traveled just to get away from home, but safety was still a top concern. This led most people to choose short-term rentals versus hotels or motels.
Vacation home investors lucked out this year with the higher popularity, as many investors saw as much as a 50% increase in occupancy in their vacation rental, especially in the hot spots. Reservations are up 270% for reservations between July through September than it was in 2020 and 80% higher than 2019.
Is Property Investment A Good Idea In 2021?
Everyone is worried today about where to invest their money. With housing prices increasing and the stock market going every which way throughout the pandemic, it’s easy to see why investors would wonder.
It’s always a good idea to diversify your investments, putting some money in stocks, bonds, and real estate. Finding the best-priced real estate in areas with high rents and reliable tenants is essential. Roofstock Marketplace is a great resource to get all the information you need.
Do People Think Renting Is A Waste Of Money?
Many investors worry there won’t be a large enough pool of renters because people think renting is a waste of money. This isn’t the case, though, especially today. Rising housing prices make it harder for many people to afford a home which increases the pool of renters even more than in previous years, making it an excellent time for anyone to invest in real estate.
Do You Pay Capital Gains When You Sell A Real Estate Investment?
Yes, unlike your primary residence, there aren’t any capital gains exclusions when selling an investment property. It’s a good idea to work with a tax advisor before selling an investment property to ensure you time it right so you are in the lowest tax bracket possible and won’t overpay on taxes on your capital gains.
Will The Trends Change?
Like anything in the economy, no one knows for sure. Right now, we know what the economy looks like and how high the demand is for properties. We also know that millions of people can’t afford to buy a home and need a place to rent, making it an excellent time for investors.
The Bottom Line
Real estate investors are in a good position right now. With financial assistance ending and more people finding themselves in trouble and either selling their investment homes or ending up in foreclosure, people with capital available can buy the properties and earn monthly cash flow plus appreciation.
The real estate industry is still competitive, but investors have plenty of opportunities to make the most of their money.
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